OECD reveals the world's cheapest and most over-valued property markets - and says UK house prices are still 31% too high

House prices in Britain are overvalued by 31 per cent compared to rents and 21 per cent too high against incomes, according to a study by the Organisation for Economic Cooperation and Development.

Britain is named as one of many of the world's property markets that still have overpriced housing stock but are also seeing values continue to rise.

The research compared prices with local wages and rents and according to the OECD there are still more overvalued than undervalued markets, including many European countries where the post-crisis housing market correction is still ongoing - most notably Spain.

The price is not right: Belgium has the most overvalued housing - while Japan has the most undervalued

It says property values in Britain, Belgium, Denmark, Finland, the Netherlands and one non-European country, Australia are increasing, despite being overvalued.

Most of these country's are heavily reliant on their property market and have seen households build up big mortgage debts.

The OECD report said: ‘While price corrections in these countries are necessary, they are also concerning as they weaken households’ financial health.’

It suggests Belgium, Norway and Canada, where the new Bank of England Governor Mark Carney has been head of the central bank,
are the most expensive markets compared with their own long-term
averages, followed by New Zealand, France and Australia.

For valuations, if the price-to-rent
ratio - a measure of the profitability of owning a house - and the
price-to-income ratio - a measure of affordability - are above their
long-term averages, house prices are said to be overvalued, and
vice-versa.

The data found house prices differ widely across OECD countries, both with respect to recent changes and to valuation levels. A change in the real price compared to a year earlier is used to tell whether prices are rising or falling.

Where is property cheap?

There are a number of countries where houses prices are undervalued and still falling, according to the data.

This category includes European countries hit hard by the crisis – Greece, Ireland, Portugal, Slovenia, Slovakia and the Czech Republic – but also Japan.

Two countries – Germany and Switzerland – have houses which appear undervalued but are rising.

The OECD points to strong growth in
household disposable income and favourable financing conditions for the
price boost in these two European countries.

It says a handful of countries have properties which are broadly correctly valued.

This category includes the US, where prices have started rising again after a substantial correction during the financial crisis.

It also points to Italy where prices are falling rapidly, Austria, where prices are rising and Iceland, Korea and Luxembourg where prices are roughly flat.

Expensive: Nationwide's chart shows property still remains well above its long term affordability levels.

House prices in Britain fell drastically in the wake of the financial crisis but have been steadily rising in the last few years – many house price indexes are reporting prices which are racing towards pre-2008 levels.

But the British property market is being propped by London, which is in turn being propped up in its most expensive areas by an influx of foreign buyers. The Battersea Power Station development for example has sold out of most of its 866 luxury apartments – but all to Singaporean investors looking for a safe haven.

Average prices in prime central London have hit £1.4m, the latest Land Registry all sales data analysed by specialist London Central Portfolio shows, up 13 per cent on a year ago.

Meanwhile, prices in suburban London are also shooting up, with monthly Land Registry figures showing Camden up 11.8 per cent, Hackney up 10.3 per cent and Hammersmith and Fulham up 11 per cent.

According to the Nationwide house price index for May, confidence in the economy and an increased availability of cheap mortgages pushed average house prices to their highest level in nearly two years.

It found prices rose 1.1 per cent on a year ago, its fastest rise since November 2011, and 0.4 per cent on the previous month.

The average property is now worth £167,912 - the highest level since July 2011 when the average house cost £168,731.